Foot Locker (NYSE:FL) Inc. reported a mixed financial performance for Q3 2024, with a decline in total sales and a revision of its full-year earnings guidance. Despite some positive trends, the company's stock experienced a significant drop in pre-market trading, reflecting investor concerns over its future outlook.
Key Takeaways
- Total (EPA:TTEF) sales decreased by 1.4% in Q3 2024.
- Comparable sales rose by 2.4%.
- The company revised its full-year EPS guidance downward.
- Pre-market trading saw a 13.82% drop in stock price.
Company Performance
Foot Locker's Q3 results showed a mixed performance, with total sales down 1.4% year-over-year. However, the company reported a 2.4% increase in comparable sales, indicating some resilience in its core operations. The gross margin expanded by 230 basis points to 29.6%, reflecting improved cost management.
Financial Highlights
- Revenue: 1.96 billion dollars, slightly below the forecast of 2.02 billion dollars.
- Non-GAAP earnings per share: 0.33 dollars, up from 0.30 dollars last year.
- Inventory levels decreased by 6.3% year-over-year.
Earnings vs. Forecast
Foot Locker's revenue of 1.96 billion dollars missed the forecast of 2.02 billion dollars, representing a shortfall of approximately 3%. Despite this, the EPS of 0.33 dollars exceeded the forecast of -0.08 dollars, marking a positive surprise in earnings performance.
Market Reaction
Following the earnings announcement, Foot Locker's stock fell by 13.82% in pre-market trading, with the price dropping from 24.17 dollars to 31.3 dollars. This decline reflects investor concerns about the company's revised guidance and challenging market conditions. The stock is now trading closer to its 52-week low of 19.35 dollars, highlighting the pressure on the company's valuation.
Company Outlook
Foot Locker revised its full-year non-GAAP EPS guidance to a range of 1.20 to 1.30 dollars, down from the previous guidance of 1.50 to 1.70 dollars. The company expects Q4 non-GAAP EPS to be between 0.70 to 0.80 dollars, with comparable sales projected to grow by 1.5% to 3.5%.
Executive Commentary
CEO Mary Dillon acknowledged the challenges, stating, "Despite continued and meaningful progress, our Q3 results did not meet our expectations." Meanwhile, CFO Mike Vaughn emphasized the company's long-term goals, saying, "We remain committed to reaching our longer-term EBIT target of 8.5% to 9% by 2028."
Q&A
During the earnings call, analysts questioned the company's inventory management and promotional strategies, particularly concerning Nike (NYSE:NKE) products. Executives also discussed the weakness in the apparel category and the performance of the Champs Sports and WSS banners.
Risks and Challenges
- Elevated promotional environment impacting margins.
- Continued pressure in the apparel segment.
- Macroeconomic challenges affecting lower-income consumers.
- Dependence on key brand partnerships for growth.
- Shifts in consumer spending patterns during peak periods.
Foot Locker's revised guidance and stock performance highlight the challenges it faces in a competitive retail environment. While the company is making strategic adjustments, the road ahead may require further innovation and adaptation to changing market dynamics.
Full transcript - Foot Locker (FL) Q3 2025:
Conference Operator: Good morning, and welcome to Foot Locker's Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. This conference call may contain forward looking statements that reflect management's current views of future events and financial performance. Management undertakes no obligation to update these forward looking statements, which are based on many assumptions and factors, including the effects of the global economic and market conditions, currency fluctuations, customer preferences and other risks and uncertainties described more fully in the company's press releases and reports filed with the SEC, including the most recently filed Form 10 ks or Form 10 Q.
Any changes in such assumptions or factors could produce significantly different results, and actual results may differ materially from those contained in the forward looking statements. Please note this conference call is being recorded. I would now like to turn the call over to Mr. Robert Higginbotham, Senior Vice President, Corporate Finance, Investor Relations and Treasurer. You may begin, sir.
Robert Higginbotham, Senior Vice President, Corporate Finance, Investor Relations and Treasurer, Foot Locker: Thank you, operator. Welcome, everyone, to Foot Locker Inc. 3rd quarter earnings call. We will begin with prepared remarks by Mary Dillon, our President and Chief Executive Officer Frank Bracken, our Executive Vice President and Chief Commercial Officer will then give more detail on our results across our banners and geographies. Then Mike Vaughn, our Executive Vice President and Chief Financial Officer, will review our Q3 results and our updated 2024 outlook.
Following our prepared remarks, Mary, Frank and Mike will take your questions. To note, today's call will reference certain non GAAP financial measures. A reconciliation of GAAP to non GAAP results is included in this morning's earnings release. Also have a slide presentation posted on our Investor Relations website with information that will be referenced during the call. Finally, for future planning purposes, we currently plan to release our Q4 2024 results on March 5, 2025.
And now, I will turn it over to Mary.
Mary Dillon, President and Chief Executive Officer, Foot Locker: Thank you, Rob. I'll start this morning with a high level review of our Q3 results and our full year outlook. I'll then provide an update on our LASA plan initiatives. Despite continued and meaningful progress, our Q3 results did not meet our expectations. As we consider this performance and the current promotional environment, we are taking a more cautious approach to our outlook and have revised our sales and earnings guidance for the year.
While we're disappointed that we did not see as much sequential improvement in the business that we had anticipated 3 months ago, we are pleased to continue to demonstrate ongoing progress against our LaceUp plan as we delivered another quarter of positive comp results and meaningful gross margin improvement in the Q3. Looking at our comp sales, our total comp increase of 2.4% in the quarter was led by share gains from our Global Foot Locker and Kid Foot Locker banners, which comped up 2.8%. In addition, both our Champ Sports and WSS banners accelerated back to positive territory, up 2.8% and 1.8% respectively, led by strength in the back to school period. In the quarter, we saw consumers remain cautious with their discretionary dollars. More specifically, this translated to shoppers concentrating spending around the peak back to school selling season in August, and then pulling back in September October, which we believe reflected consumers holding off on spending ahead of holiday events.
Turning to gross margin, we saw an improvement of 2 30 basis points year over year led by merchandise margin recovery against last year's higher level of promotions. Our merchandise margin recapture accelerated versus the Q2, although this recovery did not come through to the degree that we had anticipated. In the Q3, we saw that the promotion environment was more elevated and widespread across channels than what we had anticipated 3 months ago. At the same time, we continue to demonstrate disciplined expense management, including through the execution of our cost savings plan, which is now on pace to deliver $90,000,000 in savings this year above our prior expectations of $80,000,000 Our non GAAP earnings per share in the quarter were $0.33 up from $0.30 last year, but below our guidance of approximately $0.40 As we look to the remainder of the year, we have updated our full year non GAAP EPS to be in the range of $1.20 to 1 $0.30 down from our prior range of $1.50 to $1.70 Looking to the Q4, we expect our customers to remain cautious with their discretionary dollars and to consolidate their spending over peak periods in the holiday season. We also expect the elevated promotional activity we saw in the Q3 to continue through the holiday season.
On quarter to date trends, after a softer start to the season in the 1st 3 weeks of November, we saw meaningful acceleration in trend during Thanksgiving week. Looking towards the remainder of the quarter, we anticipate benefiting from a favorable launch calendar, but remain cautious in light of the steeper lulls we saw with the consumer in the Q3 outside of peak selling periods. This is in addition to an overall heightened promotional environment and condensed holiday period. We expect gross margin improvement in the quarter as we lap last year's elevated markdown levels in our business, particularly in the apparel category. However, we have moderated our expectations regarding our margin recapture opportunity in the quarter as we see elevated promotional dynamics inclusive of DTC and retail peers in both Europe and North America.
While we're disappointed to be adjusting our full year outlook, we're continuing to make progress against our LASA plan and are committed to meeting our longer term financial targets, including our 8.5% to 9% EBIT margin target by 2028. Now with that, let me provide an update on our Lace Up plan and progress against our strategies in the Q3. Starting with our first imperative, which is expand sneaker culture. Let me start with our top partner Nike. We're pleased with how we've elevated our partnership over the last several quarters.
We look forward to building upon this momentum with Elliott Hill and his team at Nike. We have a long standing relationship with Elliott and are excited to work with him given his passion for product, innovation and athlete and consumer insights to help drive distinction in the marketplace. Examples of our ongoing collaboration include the continued expansion of our work with Nike and Jordan brand on the clinic and our premier multi brand in store Foot Locker home court basketball experience. In the near term, we remain on track to return to growth on an allocation basis with Nike in the Q4, including a favorable launch calendar relative to both the Q3 and last year's Q4. That said, we know we're balancing challenges in the global marketplace this quarter.
We're seeing higher promotional levels in the marketplace compared to our prior expectations, particularly out of DTC in addition to wholesale competitors. Over time, we do expect the degree of promotional intensity to abate. We don't think it's structural as inventory levels are rationalized and as a more appropriate balance of DTC and wholesale is achieved in the channel. In the long term, we have full confidence in our largest partner, in the strength of our partnership, how Nike is positioning the brand for the future and how that will benefit the category, the industry and Foot Locker. At the same time, our proposition as a multi brand retailer is reinforced by our results as we continue to see our highest frequency customers purchasing a wider array of brands.
Also in the quarter, sales of brands such as Adidas (OTC:ADDYY), New Balance, ON, HOKA, UGG and ASICS were up strong double digits through a combination of door expansions as well as like for like gains. In lifestyle, Adidas continues to see strength globally led by women's through the lens of tariffs. In heritage running, we have expanded the number of doors with New Balance expansions compared to last year and strong comp gains across multiple footwear franchises across men's, women's and kids. In performance running, ASICS was one of our fastest growing brands in the quarter, led by strong global momentum in multiple footwear franchises across men's, women's and kids. Similarly, we're seeing strong gains in ON and HOKA and we continue to plan for new doors for those brands as we look towards 2025 and beyond.
Certainly, our controlled inventory levels give us a lot of flexibility and agility with how we're flowing product across multiple brand partners to better match our supply with customer demand. And finally, looking at our exclusive penetration in the quarter, it was 15%, down 100 basis points year over year as we lap the 25th anniversary of NIKE TN. Moving to our 2nd pillar, which is power up the portfolio. A key objective of this pillar has been to reposition our CHAMPS sports banner towards the active athlete and sports style enthusiasts. The banner outperformed our expectations in the quarter with comps up 2.8%, the first positive comp sales results at the banner since its repositioning began.
Another key objective in this pillar is to elevate and optimize our store experience through new door concepts as well as our refresh program as we continued our progress with both in the quarter. On new store concepts, recall we opened our 34th Street reimagine location in New York City in August. We also opened reimagine doors in Melbourne and Delhi with the latter marking our entry into the India market with our licensed partners, Metro Brands and Nika Fashion. Just last week as well, we opened our 2nd location in Europe in Utrecht in the Netherlands. With 6 reimagined stores now live across North America, Europe and Asia, we're excited to see the heart of sneakers come to life through this globally scalable concept.
In all these locations, we've generally seen higher conversion levels, basket sizes and increased penetration of women's footwear compared to the balance of chain. Next (LON:NXT) month, we're opening 2 additional reimagined doors here in the U. S. At Bay Plaza in the Bronx and Holyoke Mall in Western Massachusetts. Once these stores are completed, we'll have reimagined concepts that represent the full range of our store formats and box sizes within our global Foot Locker store portfolio.
That will bring our total reimagine concepts to 8 this year and we look forward to testing and learning from these locations as we build reimagine plans for the future. Turning to home court, we know that sneaker culture has long been influenced by sports and specifically basketball, and certainly the category remains a key driver of business as we aim to be the go to destination for all things basketball. That's why we're pleased to continue rolling out our Foot Locker HomeCourt experience developed in partnership with Nike and Jordan brand in select reimagined locations. Recall HomeCourt is our premier multi branded basketball focused experience. This version of Home Court was co designed with Nike and Jordan brand and features a visually striking experience meant to enhance our basketball storytelling.
It's currently live in our 34th Street and Melbourne reimagine locations and demonstrates our mutual commitment and shared vision to deliver the ultimate in store basketball experience. We've been very pleased with the results from HomeCourt thus far and we intend to accelerate our investment in this experience, especially through our reimagined concept going forward. We continue to target 100 Foot Locker HomeCourts by 2026. Our new 2026. Our new concepts including Foot Locker reimagined now represent 17% of our global square footage, up from 13% last year and moving steadily towards our 20 26 target of 20%.
In addition to the reimagine concept, we made significant headway on our store refresh program, which aims to bring more of our fleet up to an elevated and consistent brand standard globally. From a capital return perspective, we continue to see these refreshes hitting our internal hurdle rates and payback periods supported by both comps and gross margins outperforming the balance of chain. In the 3rd quarter, we completed 167 refreshes, which was an acceleration from the 80 we did in the first half of the year. We remain on target for our goal of approximately 400 refreshes this year. Adding our store refreshes on top of our new concepts, we're committed to elevating approximately 2 thirds of our Global Foot Locker and Kids Foot Locker doors up to brand standard by the end of 2025.
And finally, we're making strides in our shift to off mall. Penetration reached 41% of North American Square Footage, up 5 points from a year ago and closer to our goal of 50% by 2026. Moving to our 3rd pillar, which is deepen our relationship with our customers. Over the past several months, we've made steady progress driving awareness and relevancy for our banners with consumers. Our positioning has come to life through the rollout of brand platforms such as the Heart of Sneakers for Foot Locker and more recently Sport for Life for Chance Sports.
And customers are responding to our brand campaigns and differentiated partnerships. As a result, we're seeing improvements in both awareness and consideration. More recently in September, we celebrated the 50th anniversary of the Foot Locker brand with a month long campaign featuring exclusive products co created with Nike, New Balance, Adidas, Puma (OTC:PMMAF) and Converse. The campaign featured a strong omni and social media presence and culminated with an exclusive concert with the Grammy nominated Koi Lare at our 34th Street reimagine store here in New York City. In total, the campaign earned us over 1,700,000,000 media impressions.
As we move towards the NBA tip-off in October, we began building upon the work we've done around our core basketball category. A year ago, we announced our agreement with the NBA to serve as an official lead marketing partner here in the U. S. We more recently launched a new partnership with the legendary Chicago Bulls franchise ahead of the 2024-twenty 25 NBA season. We know that the Bulls have long been at the forefront of basketball and sneaker culture, particularly with their association with Michael Jordan and the Jordan brand and hold a shared commitment to basketball culture and the community.
The partnership features community basketball events, exclusive in store activations and a co branded tunnel walk series on social media, allowing fans a behind the scenes look at their favorite players as they're getting ready to take the court. We'll continue to lean into our basketball business through our partnerships with the NBA and the Bulls in addition to our home court experience. Looking at holiday, we launched a campaign in November called Step Into Your Gift, which featured top NBA talent, including Anthony Edwards and LaMelo Ball (NYSE:BALL), along with Koi LeRae. Through this work, we're underscoring Foot Locker's role as the heart of sneakers as we embody the energy of gift giving and sneaker culture this holiday season. Moving on to loyalty, 27% of our sales in the 3rd quarter were through our loyalty program, which was up 4 points compared to last year.
Since the June relaunch of our FLX Rewards program here in the U. S, we've been very pleased with our members' response across a variety of KPIs, including a higher pace of enrollments, engagement with first time redeemers and higher AOBs compared to non loyalty members. Following an improvement in our sign up experience in stores towards the end of October, we've seen a meaningful improvement in the sales capture rate in stores as we've moved into November. This holiday, we're excited to continue to activate through the program, including the recent addition of members only events in stores and online across banners. We're already seeing these events drive value for the program in the pace of new enrollments and lift in the sales capture rates.
We look forward to sharing incremental insights as the program moves towards our 50% loyalty penetration by 2026. Turning to our final pillar, be best in class omni. In our stores, comp sales were up 2.22% in the quarter. While traffic proved more challenging, especially in September October, we saw some of our highest conversion increases in stores year to date, speaking to how our initiatives around product, in store experience and striper education and trainings are working. On an enterprise level, global digital comps were up 3.6 percent as we continued to make strides in our online conversion rate due to ongoing improvements to the customer experience, including better merchandising capabilities.
Our digital penetration in the quarter increased 60 basis points year over year to 17.6 percent of sales as we continue to target around 25 percent e commerce penetration by 2026. Last month, we are excited to roll out our new and improved mobile app across the U. S, which provides a faster, more modern shopping experience featuring richer content and improved launch experience. Importantly, the app serves as a hub for our new loyalty program across both stores and online, making it that much easier for our members to track and access their points across channels. While still very early days, the app has already seen a strong uptick in conversion levels, and we're confident that this improved experience can be a significant lever for us to drive both our digital and loyalty penetration over time.
In closing, despite continued and meaningful progress, our Q3 results did not meet our expectations. That said, we continue to see our sustained positive comps and gross margin expansion as proof points that the LASA plan is working across multiple dimensions. Now let me hand it over to Frank to provide more details on our category and banner performance.
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Thank you, Mary, and good morning, everyone. Starting with Q3 product and brand partner performance, footwear comps positive high single digits. These gains were led by strong results out of the Adidas, New Balance, ON, HOKA, UGG and Asics brands, while we are contending with some more recent softness out of our top partner Nike. Within the basketball category, we continue to see strength within our portfolio of next generation signature athletes such as Nike's JAA 2, Sabrina 2, Adidas AE 1 and Puma's Melo 4, along with retro models such as Nike's FoamPosit and Kobe. I should also note that we were thrilled to feature Anthony Edwards in our Foot Locker holiday marketing campaign, which is now in market and driving great engagement with consumers.
We also introduced Anta to several of our doors as well as online in the quarter and have been pleased with our customers' response to the Kai 1. We'll continue to test and learn with this exciting new partner in the seasons ahead. As Nike rebalances their product mix and inventory levels in the near term across the Basketball Classics franchises, we are seeing some short term negative impacts on our business. We are seeing higher promotional levels in the marketplace across both DTC and competition, which is having a cascading impact as we need to react and compete with those dynamics headed into the holiday season. However, as previously communicated, we do return to growth on an allocation basis during the holiday season with Nike and have a favorable launch calendar as well.
Meanwhile, our overall inventory levels with them remain controlled and we are working together closely to optimize new receipt flow, retail sell through and prioritize full price selling as best possible. At a strategic level, we are confident in the strength of our partnership with NIKE as we continue to engage with our new leadership team. Serving our young multicultural customers through our strategic platforms of basketball, sneaker culture and kids continues to be the top priority for our partnership. Turning to the lifestyle category, Adidas continues to lead the global terrorist trend, especially within our women's and kids segments. Our order book and go to market plans remain very strong as we approach the holiday season, as we continue to see robust consumer demand across our global banners.
In lifestyle running, New Balance continues to deliver strong momentum through a combination of door expansions as well as like for like games. Franchises like the 90sixty have quickly become new icons with our younger multicultural consumer across men's, women's and kids. Looking ahead, we continue to see room for growth with this important partner across all of our banners and geographies. ASICS is another brand that is seeing strong global momentum across men's and women's as it leverages its authenticity in running through styles such as the GEL NYC and the GT 2160. We look forward to working closely with ASIC's leadership team to profitably grow our partnership globally.
Within performance running, ON and HOKA are continuing to bring new consumers into sneaker culture, especially women and kids. We're pleased to continue to drive strong double digit gains with these partners as we selectively expand doors to reach new consumers, while continuing to see strong like for like gains. Finally, as we look ahead to holiday season, the UGG brand continues to be a large part of our plans. With classics such as the Tasman in addition to franchises like the L'O'Mel, UGG remains a key partner to drive consumer excitement during the gifting season. Our go to market plans with UGG include engaging content and elevated in store presentation, which we believe will capture our customers' attention.
Turning to the apparel business, challenges persisted with comp declines deepening to down in the low 20s. As innovation within apparel is lagging compared to our footwear business, we see this manifest in a more promotional environment as consumers clearly are seeking more newness and innovation in the category. However, a bright spot continues to be our private label apparel business, especially CSG and CSG Active at Champ Sports. We will continue to invest in our private label capabilities and assortment as it is driving outsized merchandise margins and offering styles and price points that our brand partners do not service. Finally, our accessories business comped up high single digits as we continue to build the Shoppers transaction through categories such as socks, headwear and shoe care.
Here again, the merchandise margins are attractive as we work through both branded partners and private label to deliver our plans in this category. Switching to channel performance, comparable sales in our stores increased 2.2%. While traffic was down year on year and down sequentially compared to the Q2, we continue to see gains in conversion as well as average ticket including positive AURs. Meanwhile, digital comps increased 3.6%. We continue to deliver higher digital conversion levels as our efforts to improve the customer digital experience continue.
And as Mary mentioned, we recently upgraded our mobile app experience for Foot Locker in the U. S. Where we are already seeing improved customer sentiment in the shopping experience alongside increasing conversion results. Now for performance by banner and geography. In North America, overall comps were up 2.1%, including our Foot Locker North America comp up 1.6%.
Our Foot Locker banner saw a strong back to school season across both men's and women's. The team drove excitement and engagement through the quarter with our compelling back to school campaign, our 50th anniversary celebration and our basketball activations including our Chicago Bulls announcement. With share gains across men's and women's in the quarter, we feel well positioned headed towards the remainder of the holiday season. Kids Foot Locker comps up 3.2% in the quarter. Trends accelerated from the 2nd quarter led by a solid back to school season in August as we were better able to match product supply with demand.
Customers responded to our assortments across multiple categories including basketball, running and seasonal driving solid increases in our conversion levels. Looking to the Q4, we believe our kids banner is well positioned to continue to take market share. At Champ Sports, comps were up 2.8%, a nearly 7 point improvement from 2nd quarter results and the first positive banner comp since the repositioning. Conversion levels were positive year over year as customers responded to the banner's updated head to toe sports style positioning with differentiated assortments from partners such as New Balance, Adidas, ASICS and our CSG label. Under its new brand platform Sport4Life, Champ Sports is really celebrating the connection between sports and the on the go lifestyle of our active consumers.
Last month, Champ Sports rolled out its holiday campaign featuring Aaron Judge for the Jordan brand and Trey Turner for Adidas. And we are seeing our marketing help Champs gain share with the active athlete and sports style enthusiast consumer segments. Champs Sports also continues to distinguish itself in stores and in the community through its exclusive Run Club program. Feedback from our brand partners as well as customers has been very positive and the Champs team will continue to scale Run Club at holiday and into 2025. Overall, we feel good about the traction Champs Sports continues to make under its new positioning as we head towards 2025 and are proud of the team leading that work.
Moving to WSS, we were pleased to see comps inflect to a positive 1.8% led by a strong back to school performance in August. The banner's efforts to emphasize value for the full family through its compelling marketing and differentiated assortments including below $80 footwear as well as global football and workwear continues. While the overall macro backdrop remains tougher for our WSS customers, our team continues to position the banner with compelling assortments and competitive offers in the peak holiday periods. Turning to Europe, comps were up 6.4%. Promotional levels were elevated in the marketplace, especially in digital and in the apparel category, and our teams reacted in the quarter to remain competitive.
We continue to focus on elevating the consumer experience in our European business as we navigate the choppy environment. We opened our 2nd Foot Locker reimagine store this quarter near Amsterdam and we continue to invest in our store refresh program, Amsterdam and we continue to invest in our store refresh program, which are performing well. In Asia Pacific, comps were down 7.3%. At our Foot Locker banner, comps fell 5.6%, reflecting ongoing headwinds in the Australian marketplace from a challenged consumer. And finally, at Atmos, comps were down 11.2%, reflecting our decision to accelerate shifts to our own digital site and away from less profitable third party digital platforms and partnerships.
To conclude, we were pleased to deliver another quarter of positive comps and solid gross margin expansion in the quarter, led by our Global Foot Locker and Kids Foot Locker banners, but also a return to positive comps from Champ Sports and WSS. Our lace up strategies continue to take hold and our assortments are well positioned as we look towards the remainder of the holiday season, where we will continue to balance comp growth, margin expansion and market share gains. I'll now hand the call over to Mike to go over the financials and guidance in more detail.
Mike Vaughn, Executive Vice President and Chief Financial Officer, Foot Locker: Thank you, Frank, and good morning, everyone. In the 3rd quarter, starting with revenue, total sales were down 1.4%, but were led by comps up positively at +2.4%, which was in line with the 2nd quarter's results, but below our expectation of further acceleration. We were pleased, however, that the Foot Locker North America, Kids Foot Locker, Champ Sports, WSS and Foot Locker Europe banners all had positive comp sales. In terms of cadence, comps peaked in the August back to school period as customers consolidated their spending during those key selling moments, followed by softer trends in both September October. As a result, August comps of positive high single digits slowed to negative low single digits in both September October.
Moving to margins, we were pleased to accelerate our year over year gross margin rate expansion in the quarter relative to our 2nd quarter trend, while also sustaining our positive comp trajectory. Gross margin for the quarter expanded points to 29.6 percent, highlighting our continued progress in recovering last year's heightened promotions, but falling short of our expectations. While we continue to make sequential improvement in the 3rd quarter, we also ensured we were positioned competitively in the marketplace and didn't pull back as far as we had expected. Merchandise margins were the full driver of the improvements as they increased 230 basis points driven by fewer markdowns year over year. Occupancy as a percent of sales was approximately flat on a rate basis.
Approximately $15,000,000 of gross margin savings from our cost optimization programs also flowed through our cost of goods line. For the Q3, our SG and A rate came in at 24.6 percent, representing deleverage of 2 10 basis points. SG and A dollar growth of 8% landed below our prior expectation of a low double digit dollar increase as we continue to tightly manage expenses in addition to ongoing progress against our cost savings program. Investments in technology and brand building increases drove the absolute dollar growth year on year. These increases were partially offset by $10,000,000 in savings from our cost optimization program.
Collectively, our cost optimization program generated total savings of approximately $25,000,000 in the quarter. Finally, our earnings loss per share was $0.34 and our non GAAP earnings per share landed at $0.33 Turning to the balance sheet, we ended the quarter with $211,000,000 of cash and total debt to $445,000,000 At quarter end, inventories were down 6.3% versus last year, as we remain committed to keeping our inventories control. Despite the sales shortfall in the quarter, we remain pleased with the composition and quality of our inventory. We've operated with reduced inventory for the last 4 quarters to more normalize our composition and overall levels of inventory. And as we look forward, we continue to expect to end the year with inventories approximately flat to last year.
I also want to highlight an update within our release regarding our non cash impairment charges within the quarter. Following a strategic review, we took a $25,000,000 non cash charge against the Atmos trade name, which is excluded from our non GAAP earnings. While the Atmos business continues to perform well, the charge reflects our recent moderation of growth expectations. The second is related to a $35,000,000 non cash charge on our minority investment portfolio following our routine asset review. This charge flows through our other expense line, but is excluded from our non GAAP earnings calculation.
Moving on to our 2024 outlook, we are updating our full year non GAAP EPS guidance to $1.20 to 1 $0.30 from $1.50 to $1.70 previously. We expect full year comps of plus 1% to plus 1.5% at the lower end of our prior plus 1% to plus 3% comp range. Overall, our store count will be down approximately 4% in 2024 with square footage down approximately 2%. We expect to open 27 new stores in the year and to close approximately 130, Including an approximate $100,000,000 drag from lapping the extra week, total sales for 2024 are now expected to be down 1% to down 1.5%. In terms of adjusted capital expenditures, we expect 2024 to be $320,000,000 slightly less than our previous expectations of $330,000,000 Now let me turn to our 4th quarter expectations.
While the 1st 3 weeks of November underperformed our expectations, we did see an improved and nicely positive year over year trends during the Thanksgiving and Black Friday like for like week. We've seen consistently solid and improving trends within our stores and are navigating a promotional environment, especially in digital. In other words, the quarter is following the trend we've experienced all year, where customers are responding in the peak selling moments. The combination of the slower start to November, the positive Thanksgiving and Black Friday week, the elevated promotional environment and the shortened holiday calendar have combined to inform our updated guidance. With that context in mind, for the Q4, we expect our non GAAP earnings per share to be in the range of $0.70 to $0.80 Our outlook assumes a comp of +1.5 percent to +3.5 percent.
The middle end of the range assumes essentially a steady state from our 3rd quarter comp trend. On gross margin, we assume improvement from the Q3 with margins projected up 240 basis points to 260 basis points year over year to 29.0% to 29.2%. With the backdrop more promotional than we anticipated this holiday, we're not able to dial back our promotions to the degree we expected 90 days ago. However, as highlighted by our outlook, we do still expect Q4 to be the most meaningful margin improvement year over year within 2024 as we don't anniversary some of the heavy promotional activity that we took last year, especially in the apparel category. With margin performance last year benefiting by 40 basis points from occupancy leverage from that extra week, the underlying margin improvement from the Q3 to the Q4 is expected to continue.
On expenses, we expect a 10 basis points of deleverage to 10 basis points of leverage range of an SG and A rate of 22.3% to 22.5%. On an absolute dollar basis, we expect dollars down 2% to 3% as we continue to manage our expenses carefully, benefit from our ongoing cost savings program and lap the extra week of expenses from last year. To close, while we are disappointed to be making changes to the full year outlook, we are also encouraged by our ongoing positive comps and gross margin expansion within the quarter, which we still expect to maintain and accelerate in Q4, supported by the momentum we have in our LaceUp plan. We remain committed to reaching our longer term EBIT target of 8.5% to 9% by 2028. We look forward to updating you on our progress next quarter.
With that, operator, please open the call for questions.
Conference Operator: Thank you. We will now begin the question and answer session. And the first question will come from Tom Nikic with Needham. Please go ahead.
Tom Nikic, Analyst, Needham: Thanks very much for taking my question. Mary, can you speak to the balance between sales and margin in the quarter? You were able to improve both comps and gross margin, but just not to the degree that you expected. Can you kind of rationalize and contextualize the performance in the quarter and kind of drill down a little bit more into what fell short of expectations?
Mary Dillon, President and Chief Executive Officer, Foot Locker: Sure, Tom. Thank you for your question. I'm happy to drill down further. So you're right. I mean, I guess the way I would think about it is there's 2 things that are true at once this quarter, which is that we're proud of the progress that we're making on the Lace Up Plan.
And it was the 2nd quarter that we had a set of consecutive positive comps, share gains, meaningful gross margin expansion, yet performance did fall below expectations. Aspects of the lace up plan working well, I think it's evidence starts with the comp gains of 2.4% and strong comp gains across most of our banners Foot Locker North America, Europe, Kids Foot Locker, Champs at 2.8%, WSS, meaningful gross margin expansion and then also managing our inventories well down 6%. And those are driven by things we're doing in the LaceUp plan. So progress in our stores through the refresh and reimagine, progress on digital through our new mobile app, progress in our customer relationships, I'd say loyalty and brand building 2 really good examples. So the good news is the investments are driving returns and hitting our internal hurdle rates and our payback periods.
In fact, they drove the highest conversion gains we've seen all year. So to us, that means the LASA plan is working and we're controlling the controllables and strengthening Foot Locker. But we are operating in an environment that is, I would say, temporarily impacting our business and offsetting some of the progress. So we talked about on the call, the overall macro and consumer spending behavior as well as the broader marketplace dynamics in the category were the offset. So we talked about the consumer peaks and lulls, strong back to school.
We had mid to high single digit comps and share gains, but consumer fell off after early November soft, but then we did see improved nicely positive trends over Thanksgiving week. So it's a broader marketplace dynamic on two levels and there are elevated promotions both at DTC and some elevated inventories in the industry. So we do expect that to continue into the Q4, which is why we took a more conservative approach, but we will still see comp gains and gross margin expansion. So bottom line is that LASER plan is working. We're committed to our longer term plans and opportunities and targets.
And that's just a little more color on the quarter.
Tom Nikic, Analyst, Needham: Thanks, Larry. That's very helpful. If I could sneak in a follow-up on apparel. Obviously, there's a pretty big spread between solid growth in footwear and the low-20s decline in apparel. And I know that you talked about the lack of innovation in the category, but do you think weather also played a part?
I know it was 75 degrees in New York on Halloween, probably not ideal for fall selling. Do you think that also contributed to the shortfall in apparel?
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Hey, Tom, this is Frank. So, yes, the apparel business has clearly been a headwind for the business. In Q3, we saw the comps down in the low 20s versus our overall business up in the low single digits. So weather we don't think has been the biggest driver or headwind to our business. We're not really a big player in the outerwear business.
We're mostly fleece t shirt sets and bottoms based business. I think it really has to do more from a category perspective in the industry needing to be a little bit sharper by way of innovation, looking for new silhouettes, new materials, new colors to drive excitement with the consumer. We also believe there's a bigger opportunity for connectivity to sneaker storytelling and collections. And then just overall more excitement in terms of merchandising and how we go to market with our partners. That said, there were some continued positive signals out of our private label apparel business and we're going to continue to invest in our PL capabilities as well as our go to market offense into 2025 to make sure that we capture opportunities with the consumer both from a category of silhouette as well as a price point standpoint.
So good news is our inventories and apparel are well under control and reflective of the sales trend and we're pretty clean from that standpoint. So we're working hard with our partners to share insights and ideas to get back on track in 2025.
Tom Nikic, Analyst, Needham: Thanks everyone. Happy holidays and best
Mary Dillon, President and Chief Executive Officer, Foot Locker: of luck the rest of the holiday season. Thank you, Tom.
Conference Operator: The next question will come from Michael Binetti with Evercore ISI. Please go ahead.
Michael Binetti, Analyst, Evercore ISI: Hey guys, thanks for taking our question here. So we think about the guidance for Q4, I think Mary you might have said it was the midpoint kind of lines up with what you saw in Q3. But I think there was a few unusual things in the Q3. It doesn't sound like weather was one of them, but I think the launch calendar of maybe a couple of important products or an important product might have moved on you that could have been a negative. Is there as you think about placing the guidance in Q4 in the middle of that range, is there
Tom Nikic, Analyst, Needham: are
Michael Binetti, Analyst, Evercore ISI: there other it seems like trends are improving now. Are there other things we should be thinking about that you're baking in, in the Q4? Or do you have more certainty in the launch calendar from here? Any other takes we should think about considering trends are improving now as you get into the true holiday period? And then as we I guess bigger picture as we think about what we learned here with Q3 and Q4 gross margins and look out past this year, do you think this is you used the word temporary a few times.
Do you think this is a rebasing that we need to start to rebuild from this lower level? Or it looks like consensus numbers for next year are still below pre COVID levels and you've made some serious changes to merchandise, closed a lot of unprofitable doors, got chance back to positive, etcetera. I'm trying to think about how to contextualize what we're learning here in the second half as we look out to next year.
Mike Vaughn, Executive Vice President and Chief Financial Officer, Foot Locker: Michael, this is Mike. I'll start on your question. So from a Q4 guidance perspective, you're absolutely right. The midpoint of what we've communicated is really in line with the comp sales trend that we saw over the last 180 days across the second and third quarter. From our standpoint, you mentioned a couple of things that our puts and takes within the quarter.
Q3 did have some launch product move around. But as we look to the Q4, we do see Q4 launch from our view to be a nice tailwind to the business. Some other things that we've got incorporated into our guidance is our apparel business trajectory slowed in the Q3 versus the Q2. That was about a 50 basis point quarter versus quarter drag on our business. So our Q4 is assuming that apparel stays relatively tough.
Frank did call out earlier though that we do feel good about how that inventory is positioned being down at a commiserate level to what the sales performance has been. As we think about the quarter to date, it was a softer start to the month in Q1 or in weeks 1 through 3 and we underperformed our expectations. We did move to a nicely positive like for like comparison across the Thanksgiving and Black Friday week. And then obviously we've seen the giving and Black Friday week. And then obviously we've seen the customer respond well in the peak selling moments and but we do expect things to be promotional as we think through the rest of the shortened holiday season here.
As we think about the context for 2025, obviously, we'll come back and give a much firmer view on this in March when we report. The updated margin guidance for the year assumes we recapture about 35% of that promotional activity that we saw, in 2023. So as we go into next year, we'd expect and our intention would be to continue to recover, what we haven't gotten back, but obviously contingent on the promotional environment, firming up to determine the degree of which we recover. I think the marketplace dynamics in our view right now are transitory. They're not structural, but obviously more to come on the duration of that.
And then importantly, the down 6% inventory was our 4th consecutive quarter of managing inventory down 6% to down 10%, even with the sales in the Q3 underperforming our expectations a bit, we feel good about that positioning. We feel good about ending the inventory flat year over year and heading into 2025.
Michael Binetti, Analyst, Evercore ISI: Okay. Thank you.
Conference Operator: The next question will come from Jeanine Stichter with BTIG. Please go ahead.
Jeanine Stichter, Analyst, BTIG: Hi. Thanks for taking my question. I was hoping you could elaborate a bit more on Champs and WSS. Those have been 2 underperforming divisions and we saw them start to turn a corner. So just a bit about what's working there, maybe different from the other banners.
And then within that, be interested in any demographic trends that you're seeing. I know WSS in particular has higher lower income consumer exposure. Just curious what you're seeing among income cohorts? Thank you.
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Hey, Janine. Thanks for the question. This is Frank. So I'll start with Champ. So clearly, the team has been making some really great traction with its efforts to reposition the banner towards the active athlete and the sports style enthusiast.
And we're seeing the real payback and return on the more focused assortments and investments, particularly behind our in store and digital experience there. So really strong back to school results, particularly over August as the consumer responded to those assortments and the new positioning, which is sport for life. And then recall that earlier in the year, we made some in store improvements where we elevated 250 of the Champs fleet to represent the go forward strategy and just do a better job in communicating that merchandising strategy and some of the key connectivity between footwear, apparel and accessories. As we head into holiday, I think the team feels very good about our leadership and head to toe looks, including footwear, apparel, accessories. We've got really strong positions in some of our sneaker essentials and icons.
And we're seeing really great consumer and brand partner response to our Run Club platform, which includes product assortment, community marketing, as well as digital storytelling. So overall, the quality assortment continues to improve. The banner is demonstrating improved margins, as well as sales recovery, of course. And we're seeing a really great response from our vendor partners importantly. So feel very good about that and expect that to continue.
Relative to WSS, we did make progress in the Q3. They too had a strong August, which drove the overall Q3 to a comp positive result. We continue to look very hard at our price and value proposition for the full family and include that in our messaging, our marketing campaigns and in store pricing. That said, you mentioned the consumer and some of the demographics and income. I'll remind everyone that nearly 60% of our shoppers at WSS have an income sub $50,000 So clearly, there's some extra pressure on those households.
The California market still represents about 3 quarters of the sales. And clearly, the consumer pressure there, whether it's housing, whether it's fuel prices, utilities, etcetera, food, continues sort of weigh on that consumer. So I think the team has done a really good job navigating the headwinds from the consumer pressure there. So we have made the appropriate slowdown in capital investments on store openings until such time as we feel we can reaccelerate. But we continue to be bullish on WSS, the leadership team and the overall proposition as we manage through some tough consumer headwinds in the short term.
Kelly, Analyst, Citi: Great. Thanks so much.
Conference Operator: The next question will come from Paul Luiz with Citi. Please go ahead.
Kelly, Analyst, Citi: Hi. This is Kelly on
Cristina Fernandez, Analyst, Telsey Advisory Group: for Paul. Thanks for taking your question. Just could you elaborate a bit more on the higher promos in the quarter? Were those felt footwear versus apparel? And it sounds like they were concentrated in Nike and you had to be more reactive based on Nike promotions in the Nike DTC channel.
Is that a fair assumption? And when we when would you expect Nike inventory to be more balanced across the marketplace?
Mike Vaughn, Executive Vice President and Chief Financial Officer, Foot Locker: Hi, Kelly, thanks for the call. This is Mike, and I'll start on the answer. So within the quarter from a promotional standpoint in Q3, it was really Europe and apparel that were higher than what we had anticipated. We sort of flagged Europe being concentrated some apparel promotions that were occurring, still feeling good about the overall inventory composition, but for the competitive nature and the ability to be able to respond to have some heightened promotions within there. And then as we think through our Q4 outlook that we've provided, we expect those trends to continue specifically in terms of Europe and apparel, but also have seen the pace of promotion within North America, particularly in DTC and then bleeding into the wholesale channels be elevated.
And that's what our outlook is responding to.
Cristina Fernandez, Analyst, Telsey Advisory Group: Got it. And just could you elaborate a bit more on the quarterly trend commentary, including your Thanksgiving week performance, are quarterly trends running in line with guidance? Are you betting in a deceleration in comp trends relative to where you're running today? Just any color there would be helpful. Thanks.
Mike Vaughn, Executive Vice President and Chief Financial Officer, Foot Locker: So our quarter to date trends inclusive of that slower start and then what we saw across Thanksgiving and Black Friday really was the foundation for what we ended up providing.
Kelly, Analyst, Citi: Got it. Thank you.
Conference Operator: The next question will come from Cristina Fernandez with Telsey Advisory Group. Please go ahead.
Kelly, Analyst, Citi: Hi, good morning. I wanted to follow-up on the prior question around mid Nike trends you saw in the quarter. It seems like some of the softness in the brand was more broad based. Last quarter you had talked about some of the key lifestyle franchises still doing well for you. So can you talk about what you're seeing kind of broader with the brand and how it performed through the quarter?
Mary Dillon, President and Chief Executive Officer, Foot Locker: Yes. And maybe I can start and then Frank will add more. I'll just start high level, which is that, I mean, stepping back, we feel really great about our partnership with Nike and our key areas of strategic focus together around basketball, secret culture and kids. And you've heard us talk about most recently the clinic, which is a program in conjunction with Nike and Jordan brand as well as the HomeCourt are just two good examples of that really coming to life through our lace up plan. And Ellie and his team are, I think, are absolutely taking the right actions for the brand and the overall marketplace and very confident in their actions that will benefit the Nike brand as well as our overall industry and partnership.
So and we continue as a brand as a wholesaler to make the right investments, we think, for our brand partners to showcase their brands and make us as the strongest omnichannel retailer that we can be. I'll ask Frank to add a little bit more color on NIKE.
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Yes. I'll just start by again reiterating our excitement and optimism for NIKE, the new leadership team there. Clearly, they have strong brands with a ton of equity across both the Nike and Jordan platforms, and we're just really confident in the new offense that's being put in place. And so while we work through some of the short term pressure on some of the sell throughs and some of the classics and lifestyle running, We are seeing that sort of right size throughout the quarter. And as we work into 2025, feel that there'll be a better sort of supply and demand balance.
That said, we're not waiting. We're working very closely with the Nike team on our receipt intake, on remerchandising our assortment to really distort the things that are newer and working better with the consumer. So think Nike Vomero, Nike Shox platform, seeing some of the new Max Air and DN perform well. And then across basketball, there's a lot to like in terms of signature athletes. We talked about Joss, Sabrina, but also the Kobe franchise has been strong, Foam Posit and then DT Max has also been a recent addition to the assortment that's performing well.
So we're in a good inventory position with them. We'll work through some of this short term turbulence and play the long game for sure, but we're ultimately incredibly confident and appreciative of the partnership with Nike.
Kelly, Analyst, Citi: Thanks for that color. And then my second question was around the refresh stores. I know it's early the program started this year, but can you talk about if you're seeing those stores perform better than those that have not refreshed? Any insights there at least year to date on what you're seeing?
Mary Dillon, President and Chief Executive Officer, Foot Locker: Yes. I'll start. I'll ask Mike to perhaps add a little more if I missed anything, but there's kind of 2 things to think about here. 1 is the reimagine stores that we talked about on the call and by the end of the year we'll have 8 of those. And we're really pleased with the performance both of reimagine and refresh.
We're seeing meaningful increases in conversion and basket sizes and also penetration in the women's footwear, particularly in the reimagine stores relative to the balance of chain. And so we're opening up the last couple of stores this year and we look to do more in the future. But at the end of the year, we'll have 8 locations that will really scan the globe and in various store formats and sizes, which is great. So we're feeling good about all those results. And really, it's all consumer insight driven in terms of better layout, more intuitive shopping experience, better try and experience, etcetera.
Refreshes, same story. There's sort of a reimagine is the blueprint for how we think about the whole look and feel of the fleet going forward. Seeing positive impact on comps and gross margin, we're going to have about 400 of those done this year by the end of 2025, we're looking to have 2 thirds of the Foot Locker Kids Foot Locker fleet. And we're pleased with what we're seeing in terms of return on that investment so far.
Mike Vaughn, Executive Vice President and Chief Financial Officer, Foot Locker: Yes, Mary, the only couple of things I'd add to that is just when you think of the flow of refreshes throughout this year, we only completed 80 of those in the first half. So Q3 was 167. So we're going to have a similar addition of refresh stores as Q3 in Q4 to get to that 400. We've been really pleased with how efficiently the team has been doing this. We're completing most of these in about 24 hours.
So really minimizing the disruption within the stores. The combination of reimagined and refresh over time, we expect to be able to get 2 thirds of our fleet to brand standard within the next couple of years. And then finally just speaking to the efficiency of the team, we announced today that our capital is going come in a little bit lighter than what we had initially communicated. And a big chunk of that is just being able to do our refreshes a little bit more efficiently than we had initially thought.
Conference Operator: Your next question will come from Eric Cohen with Gordon Haskett. Please go ahead.
Robert Higginbotham, Senior Vice President, Corporate Finance, Investor Relations and Treasurer, Foot Locker0: Hi, thanks for taking the question. I assume U. S. Has called out for a few quarters, several quarters, strong growth in On HOKA, New Balance, ASIC. Just curious if these customers coming and shopping these brands are new or incremental to Foot Locker brand rather than just buying these brands in lieu of Nike or other legacy brands?
Are you seeing any sort of structural shift in the demographics of your customers?
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Yes, this is Frank. I'll start with that one. So I think it's some of both. I think we're seeing a consumer who's open to newness in terms of innovation and brands and their entire closet is now representing a multi brand sort of situation. So they're open to a variety of brands and categories, which is great for the health of us and for the health of the industry.
That said, across HOKA and ON, we are seeing and bringing a younger, more youthful, more multicultural consumer overall to both of those brands. And that's a function of, of course, our customer base, our real estate and our digital marketing. At the same time, we also see new consumers to us, net new consumers coming into our funnel, which is great. So we think it's a win win for both us and our brand partners. We're excited to represent those brands and have very thoughtful plans to increase store count as well as improve sell throughs and existing door bases.
We've got some great holiday content and plans programmed as well as some longer term growth plans across that category as well. So we're very pleased and happy with the results.
Robert Higginbotham, Senior Vice President, Corporate Finance, Investor Relations and Treasurer, Foot Locker0: Great. And then just on the loyalty penetration increase, can you just talk about, are you is new FLX loyalty program bringing in new customers that were not shopping at the locker or is this just long time customers now signing up? Is there any sort of quantitatively how much more these customers are spending or how much more frequently they're buying?
Frank Bracken, Executive Vice President and Chief Commercial Officer, Foot Locker: Yes. So we're seeing again some of both. I would say that because of the sign up process and the convenience of our new in store sign up, we are seeing what we're existing consumers now opting into our program because we've made it easier for them to do so. So that's been a net win. But of course, we also had some existing program members that we migrated over to the new platform.
Overall, we're still again in the very early stages and effectively the Q2 of the rollout here in North America. But we are pleased with the engagement levels we've seen with consumers up and down the funnel. We are seeing increased spend, increased basket size, units per transaction. And then early, early, but also some good green shoots around frequency. But again, we've got to need a few more quarters of data to demand that sort of categorically.
But overall, the program is working and doing precisely what we thought it would be.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Ms. Mary Dillon for any closing remarks. Please go ahead.
Mary Dillon, President and Chief Executive Officer, Foot Locker: Thank you for joining us today. I remain confident that our decisions and strategies are the right actions to put Foot Locker on the continued path towards sustainable growth. I want to extend my thanks to the entire Foot Locker team and especially to our global striper community for their dedication and commitment in ensuring that we have a successful holiday across our stores, online and at our distribution centers. We look forward to updating you on our progress next quarter. Thank you and goodbye.
Conference Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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